How do you handle/categorize expenses that you know will not be straight line expense items?

For example, you purchase a new HVAC for one of your rentals. In the register, how do you categorize/handle this transaction? Anything you select as a category does not deal with this transaction properly. Any thoughts ideas of how you handle this. Also, any thoughts, ideas on depreciation in general and the functionality of Quicken on the subject. THanks!

Best Answer

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    Accepted Answer
    Quicken doesn't have any built-in "depreciation" wizards but the accounting for a purchase of a piece of equipment that will be depreciated is very simple:
    1. Capitalize the purchase on the balance sheet as an asset when the cost is incurred.
    2. Periodically reduce that asset, either by entries to that same asset Account or via entries to a contra-asset Account called "Accumulated Depreciation", with the offset to a "Depreciation" Category.
    If you want to keep it simple, estimate a useful life for the item and use "straight line" depreciation.  Make your entries monthly, quarterly or annually as you see fit.  You can set a reminder to make these entries for you.  When the net asset hits $0, stop depreciation.  If you sell the rental at some point, allocate some amount of proceeds to the net asset, with a resulting gain or loss.
    Things get more complicated if you're trying to mimic tax law in this area.  In that case you'd need to understand what tax law requires for the particular asset you're depreciating and make entries accordingly, but I'd probably opt for the "simple" method outlined above and let your CPA or your tax program handle the depreciation, and the depreciation "recapture" if you sell the property.  There's no law that says your Quicken accounting has to exactly mimic your tax accounting.

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    Accepted Answer
    Quicken doesn't have any built-in "depreciation" wizards but the accounting for a purchase of a piece of equipment that will be depreciated is very simple:
    1. Capitalize the purchase on the balance sheet as an asset when the cost is incurred.
    2. Periodically reduce that asset, either by entries to that same asset Account or via entries to a contra-asset Account called "Accumulated Depreciation", with the offset to a "Depreciation" Category.
    If you want to keep it simple, estimate a useful life for the item and use "straight line" depreciation.  Make your entries monthly, quarterly or annually as you see fit.  You can set a reminder to make these entries for you.  When the net asset hits $0, stop depreciation.  If you sell the rental at some point, allocate some amount of proceeds to the net asset, with a resulting gain or loss.
    Things get more complicated if you're trying to mimic tax law in this area.  In that case you'd need to understand what tax law requires for the particular asset you're depreciating and make entries accordingly, but I'd probably opt for the "simple" method outlined above and let your CPA or your tax program handle the depreciation, and the depreciation "recapture" if you sell the property.  There's no law that says your Quicken accounting has to exactly mimic your tax accounting.
  • jnprop
    jnprop Member ✭✭✭
    Thanks Tom Young!
  • Tom's answer above may be exactly what you are looking for.
    If you are a new user and do not know, you can create additional categories for specific purposes such as this new HVAC unit. You can make them as specific or general as you wish.
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